-Consider the game depicted in Figure 14.11. If a motorist hits a pedestrian, the pedestrian incurs accident costs of $50. The cost of being diligent for both players is $5. If both players are diligent, the probability that an accident will occur is 5 percent. The Nash equilibrium strategy profile for this game is:
A) {Negligent, Negligent}.
B) {Diligent, Negligent}.
C) {Negligent, Diligent}.
D) {Diligent, Diligent}.
E) Answers b and c are correct.

Question

-Consider the game depicted in Figure 14.11. If a motorist hits a pedestrian, the pedestrian incurs accident costs of $50. The cost of being diligent for both players is $5. If both players are diligent, the probability that an accident will occur is 5 percent. The Nash equilibrium strategy profile for this game is:
A) {Negligent, Negligent}. 
B) {Diligent, Negligent}. 
C) {Negligent, Diligent}. 
D) {Diligent, Diligent}. 
E) Answers b and c are correct.

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is the best response to the other player's strategy. Being diligent costs $5, but significantly reduces the probability of an accident occurring to 5%. If both players are diligent, they both minimize the expected cost of an accident occurring while incurring the diligence cost, which is a better outcome than being negligent and risking a higher probability of incurring the $50 accident cost. Thus, both players choosing to be diligent is the Nash equilibrium.

-Consider the Game Depicted in Figure 14